Monday, September 02, 2013

Labor Share In US & Germany

In 1990, compensation of employees was 66.4% of national income, a share that fell to 62.5% in 2006. It then rose briefly during the Great Recession, but has fallen back during the recovery and fell to a new record low of 61.6% in 2012. It has dropped further in 2013.

Sometimes it is asserted that the falling share of national income going to labor is a universal global phenonenom caused by globalization and/or technological changes. However, the fact is that the labor share of national income hasn't fallen in all countries. In Germany, for example, compensation of employees was 68.1% in 2012, slightly higher than the 67.8% share in 1990.

Labor share of income did fall significantly in Germany during the early 2000s, but it rose during the 1990s, and unlike in the US, it has risen significantly since 2006.

Why has the labor share dropped so much in the U.S. while being unchanged in Germany? The left usually blames weaker unions while conservatives, to the extent they view it as a problem, usually blames immigration. As both means weaker bargaining position for workers, they could have contributed. One usually left out factor though is that monetary conditions in the US have been more inflationary, eroding real wages.

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